YOU ARE HERE: LAT HomeCollections

Iran Seen Likely to Doom OPEC's Oil Price Hike

November 27, 1987|DONALD WOUTAT | Times Staff Writer

Iran's desperate need to sell oil and its growing isolation from Arab and Western nations will help doom efforts to raise oil prices when the Organization of Petroleum Exporting Countries meets Dec. 9 in Vienna, U.S. Energy Secretary John S. Herrington says.

Iran, traditionally a pricing hawk, is leading the campaign to raise OPEC's official price to $20 a barrel from the current $18 and has up to nine other nations on its side in the 13-member cartel.

But Herrington said Iran's hostile actions this year in the Persian Gulf and in the holy city of Mecca have not only undermined its political standing in that part of the world but triggered events that militate against any credible rise in oil prices.

For example, oil analysts say the recent U.S. boycott of Iranian oil has stranded several tankers of Tehran crude in the mid-Atlantic without a buyer and forced Iran to slash prices up to $3 per barrel to unload the oil. That aggravated price weakening caused by other members' overproduction, and helped to depress world spot prices.

Thus OPEC meets at a time of softening oil prices and in a climate of deep fear and distrust of the chief price-hike advocate by cartel moderates and leading oil producers. The Saudis were upset by Iranian violence at Mecca in July, Kuwait by Iran's attacks on its tankers in the Persian Gulf.

"The raising of the official price would be a meaningless gesture," Herrington said in an interview. "They all know oil is going out the back door at $15 or $16 a barrel. If you raise the official price to $20, does that change the $15 or $16 price? No. And the gap between the $15 and the $20 is OPEC's credibility gap."

Herrington recently returned from an 18-day visit to the Middle East, where he met with the leaders of Saudi Arabia, Kuwait, Turkey, Egypt, the United Arab Emirates, Morocco, Qatar and Bahrain. He said the region's deepest concern is over the depth of the U.S. military commitment in the Persian Gulf.

Though Herrington repeated criticisms of Japan for not joining the United States and France in the boycott of Iran's oil and has conceded the boycott itself has a limited effect, Herrington suggested that there is a new reluctance in the world community to deal commercially with Iran.

"There's a subjective issue here. Iranian oil on the world market today is a hot potato. They've got tankers sitting off of Rotterdam (Europe's main refinery center) and buyers are asking, 'Whose oil is that?' It's getting harder for Iran to operate. It will become a factor in the internal decisions of the Iranian government."

Oil executives in the United Arab Emirates were quoted this week as saying that Japan, purchaser of up to 15% of Iran's crude exports, has scaled back its purchases in response to U.S. pressure. But Herrington said that's not good enough.

Chance to Show Good Faith

Critics have pointed out that the United States is spending $30 million a month to protect convoys of tankers carrying oil to power Japanese factories, some of which make products that compete with U.S. products and cost American jobs.

"How can they not support this friendly President Reagan who is fighting protectionist legislation?" Herrington asked, referring to Japan. "This is an opportunity for them to show good faith. When will Japan stop acting like a Third World nation and start exercising the moral leadership of a world power?"

Herrington said OPEC would be hard-pressed to hold its current official price of $18 per barrel, much less to raise it. That view is in line with many energy economists and OPEC analysts, who increasingly doubt that world demand will support a higher price.

He insisted, however, that he didn't deliver any message on oil prices to the Saudis or other major producers during his visit. In 1986, when oil prices collapsed to $10, such emissaries as Vice President George Bush were suspected of tacitly conveying to the Saudis that a price of $18 would be better for the U.S. oil industry and its exploration efforts.

"They asked me," Herrington said. "They said, 'Where would you like to see prices?' But it's not our policy to attempt to influence the price of oil."

Los Angeles Times Articles